Wednesday, November 30, 2011

Top 100 Thinkers

Here is the FP's list of top 100 thinkers. I haven't made my way through the whole list, but there sure are a whole bunch of economists there.

Source: Foreign Policy

Sunday, November 27, 2011

Random Quotes Of The Day

OK, maybe not so random. But just what I need:
Being defeated is often a temporary condition. Giving up is what makes it permanent.

Saturday, November 26, 2011

Volume 3 Issue 48: Intelligent Investing

Study Hard, Get A Good Job and Earn A High Pay?

At least, that is what our parents told us. Does that really work? As a very firm believer in hard work being rewarded, there is some part of me that can't help but feel somewhat demoralized when I read the following story about a single mother-turned-professor:
Critics of higher education love to suggest that we professors are living it up. But I'm not. I have less than $100 in my checking account. I've been ignoring a recurring robo-call from a company trying to collect a $50 payment that is overdue. The gutters on my house are falling off. My electric bill is late, and I can't drive my car because the check-engine light is on. 
Oh, and I received tenure this past spring. I'm not kidding. And no, I don't have a fat savings account, and no, I am not irresponsible with money. 
My salary is average for someone of my rank, discipline, and college size. If you're a college professor, people assume that if you don't have a healthy bank account, you must be a closet gambler or have some other hidden addiction. But my financial predicament is a result of bootstrapping my way into academe, and the harsh reality of leaping from rural Arkansas to a professor's job in upstate New York with no financial support system along the way. Indeed, it was not a leap at all but a long, slow, humiliating slog.
The message is clear. The world isn't fair. There will be some cases where hard work is not adequately rewarded. But is this a good reason to give up? Personally, a story like this is supposed to be heartwarming, endearing and inspirational.

For some of us, we will feel thankful for what we have and for what we had. I am far from having escaped the rat race. But I am glad that I have stopped running around in circles trying to make ends meet.

There was a time where hard work and an honest day's work could get you paid handsomely. Then came the era when you had to work smart, whatever that means. I think we are moving into an era where either one is not enough. You have to work hard AND smart. Even then, it is far from enough. Some people say, you need the right connections, some people say you need luck. Some people create their own luck.

But then again, as Benjamin Graham said:
Luck is when preparation meets opportunity
Go figure.

Thursday, November 24, 2011

Remember Groupon?

I have written about Groupon several times in the past few months or so (Read here, here and here). I think it is clear by now that I am uber anti-IPOs and will remain so for a long long time. If you are still not convinced about the evilness of IPOs, here are more reasons for you:
For the first time since it went public earlier this month, Groupon broke below its offering price of $20 per share. Shares of Groupon fell 16 percent on Wednesday to close at $16.96. 
The popular daily deals site had wrestled with intense scrutiny and volatile equity markets in the weeks leading up to its offering, but its debut was widely heralded as a strong performance. On its first day of trading, Groupon rose as much as 50 percent, before settling at $26.11 per share.
Here is what the chart looks like:

Can you imagine your wealth being eroded by 16% in one day? Yeah, you can tell me that if you had subscribed to the IPO and sold off at USD26, you'd make a handsome profit. But human greed does not work like that. When the price hit USD26, you would have hoped for it to go even higher.

Buying into an IPO is like injecting heroine. It can appear to be fun while the high lasts. And when you are high, you will want more of it. That is, until the high is gone.

How do you like Groupon now?

Gifts For Sex

Marginal Revolution has an interesting post on how male nursery-web spiders have to present gifts to the females in order to mate with them. While courtship among insects and arthropods are not exactly a new concept, the interesting phenomenon is that the male nursery-web spider has to wrap that gift up in silk. Even more interesting is that sometimes, the male wraps a dud in it. Before you jump to the conclusion that the male spiders are lying bastards, have a look at the picture below.

The male nursery-web spider is the small black one on the left. That is the difference in the size between the genders of the species. In the comments section of Marginal Revolution's post, one of the readers said:
Actually among arthropods, and especially among spiders the position of the female is so greatly favored, with the females usually being larger, stronger, and longer lived, that the sexual politics of this are completely reversed. This is actually true of most of most protostomes, so if you want to think about this correctly, reverse the sexes.
As an aside, ever notice how humans in general compare powerful women to insects and spiders? Spider Queens, Queen Bees, etc…
Also, Tyler Cowen has this to add:
Females presented with food will often grab the food and run, leaving the males doubly hungry. A wrapped package is harder to steal (the males have a better grip on the silk) and as the females slowly unwrap their potentially delicious presents the males copulate. Thus, the rituals of silken wrapped gifts conceal intricate conflicts over resources and sex. Only among spiders, of course.
Interesting. Females might actually run away with the gifts without giving the males what they want. Nonetheless, I think the clincher is another one of the comments on the post:
Reminds me of one of the heuristics Richard Feynman had about women in bars…
“Never pay for anything unless they have agreed to go to bed with you and you know they aren’t lying.”
HT: Marginal Revolution

Wednesday, November 23, 2011

The Road To Creativity

I recently discovered this blog, Small Biz Survival, and added it to my increasingly long reading list. You do not want to know how long my reading list is. After the rise of Facebook and many other upstart start-ups, many a dreamer dreamed of starting his/her own business that could potentially grow into millions. What most people don't know is that, the path to success is long and winding. Maybe it is Mark Zuckerberg or even Bill Gates or Steve Jobs' fault that they made it look "easy".

But building a successful company takes a lot tweaking and tweaking and improvements until you get it right. That means making lots of mistakes. Mistakes are inevitable, and can occasionally require a tremendous amount of creativity to overcome. Creativity is the key to innovation and entrepreneurship. Here is Small Biz Survival on the stop signs on the road to creativity:
Stop sign 1. No moola. Money doesn't make you more creative or guarantee success.Money is usually attracted. What are you doing to be more attractive? It's not all about inner beauty. There is a reason we have an outer side. Money is valuable, but so is time.
When you get down to it, what I'm about is love.
Go sign 1. Keep love at the center of your circle. 

Stop sign 2. No time. We all have the exact same amount of time.When you say you have not time, you mean you have no time for this. Not all action is equal.  Neither is all time.Pleasure does not equal wasted time.Caution: don't go fast in the wrong direction.
Go sign 2. Persist. In the confrontation between the rock and the stream, the stream wins not by strength but by persistence.Piece by piece. Step by step. Baby steps. 
Stop sign 3. Don't have the education. An education doesn't make you creative or successful.No one majors in common sense.Caution: cockiness in what you know can lead to you not knowing much. You have to be open minded past your judgment.
Go sign 3. Be educated where and how you can.  
Stop sign 4. It has to be perfect. You don't achieve perfection by being a perfectionist.The process of being creative is messy and imperfect.Don't do the BEST you can. Do WHAT you can.  You can't always give 100%.Go from failure to failure without loss of enthusiasm. It's what's in between the failures that counts. 
Go sign 4. Be yourself. Everyone else is taken.
Stop sign 5. I had bad stuff happen.Your problems are real and valid. Problems worthy of attack prove their worth by hitting back.Don't compare your bad stuff with other people's bad stuff.Your bad habits may help you to cope. But don't hold on to those bad habits past the reason you needed to cope.Unless you change direction (attitude), you'll get where you are going.
Go sign 5. Rise to your problems.The occasion is piled high with difficulty, and we must rise high with the occasion. A. Lincoln
Stop sign 6. I'm a chicken. Reality is, you will fail. Yes, someone is better than you. But don't give them power over you.Better than you or not, they aren't thinking about you.
Go sign 6. "Life is much more unexpected than I expected," Marty said.
Kudos: Small Biz Survival, The Napkin Dad

Volume 3 Issue 47: Two-Cent Economics

Pity The Wall Street?

This particular story makes the Wall Street bankers sound so sad:
Earlier this fall, Steve Ferdman celebrated getting a job offer from Credit Suisse in the usual Wall Street fashion. Over expensive oysters and dark rum cocktails at a trendy Manhattan restaurant with his parents, he toasted landing the full-time position after working six months as a consultant without benefits. 
A week later, Mr. Ferdman, 28, sat alone at the same place and ordered a gin and tonic to lament getting laid off by the bank, for the second time since 2008. When he told the bartender about his misfortune, his next round was on the house. 
The mood is even darker outside the Ivy League. Matthew Slotnick, a senior economics major at Boston College, said that he had sent more than 100 résumés to contacts on Wall Street and received several interviews. But he has not gotten any offers. Mr. Slotnick, who has wanted to work at an investment bank since entering college, is now applying to smaller banks and firms outside of New York. 
“People are saying it’s sort of a 2007, 2008-type hiring climate,” he said. “I haven’t given up, but it’s a bit depressing.” 
Any sympathy for Wall Street’s huddled masses yearning to get rich should be tempered by the fact that financial sector recessions often deal a soft blow. Laid-off financial workers typically get large severance packages, including the use of outplacement services. During their job hunt, many can draw on substantial savings built off past bonuses, on top of collecting unemployment. 
But for those laid-off Wall Street workers whose golden tickets have vanished, the disillusionment is real.
It is always difficult to sympathize with the big bonus-guzzling junkies on Wall Street. There is a reason for Occupy Wall Street. It is an industry which has been "lightly regulated" (more like unregulated) while they make tonnes of profit. As with all "frauds", as long as they keep making money, we allow them to keep doing it. Just ask Nick Leeson or Jerome Kerviel.

Even those who do not have the intention to cheat are given a huge benefit of the doubt, despite taking excessive risks, as long as they continued to make huge profits. Ask LTCM. The excessive risk-takers were probably allowed to roam free because the regulators themselves were possibly having a small piece of the action. With so much money piling up, there is bound to be some spilled over.

As for the smarties who were not able to procure jobs on Wall Street, perhaps in many years to come, they may consider it a blessing in disguise. Because on Wall Street, in the pursuit of the millions and billions of dollars, many of these geniuses lose themselves instead of finding what they were looking for.

Source: Dealbook

Saturday, November 19, 2011

Volume 3 Issue 47: Intelligent Investing

Buffett's Insider Advantage Revisited

I wrote about the special treatment that Warren Buffett was given in the previous issue of the Main Streeter.

Here is more: 
The Securities and Exchange Commission usually doesn’t let investors keep many secrets. Except if you’re a major player like Warren Buffett. 
On Monday, Mr. Buffett disclosed that his company, Berkshire Hathaway, had bought a 5.5 percent stake in International Business Machines, his first big investment in a technology company ever. 
But Mr. Buffett didn’t build his $10 billion-plus stake in I.B.M. overnight. He started buying eight months ago, beginning in March. You wouldn’t have known that if you had been studiously reading Berkshire Hathaway’s filings — known as 13Fs — in which companies must disclose stock holdings. There was no mention of I.B.M. in Berkshire’s quarterly filing in April, nor in August. Instead, if you were looking carefully, you might have found an odd footnote that said: “Confidential information has been omitted from the form 13F and filed separately with the commission.” 
Translation: Mr. Buffett received special permission from the S.E.C. to keep secret his investment in I.B.M. — and possibly keep secret stakes in other companies that he is building positions in that we have yet to learn about.
Over the decades, questions have been raised about the S.E.C.’s confidentiality rule, but have been quickly mooted. Back in 1997, Larry N. Feinberg, the founder of Oracle Partners, memorably told BusinessWeek: “I do not think confidential filings are fair. If I’m going to pull down my pants in public I want everyone to pull down their pants, too.”
Isn't demand and supply what the stock market is about? If Buffett wants to increase the demand of a certain stock, then inevitably, he has to pay a higher price. Why does he get the advantage of getting "insider" prices by having the SEC "hold down" the prices for him?

Source: Dealbook

Friday, November 18, 2011

The Wisdom of Warren

Just a couple of days ago, I embarked upon a mini Warren Buffett bashing session. But as everybody knows, it is difficult to hate a man like Warren Buffett. So here is me, repaying my dues, with a timeless quote from the man himself:
"Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway."

Wednesday, November 16, 2011

The Mootness of Rating Agencies - Part 2

Not too long ago, I wrote about rating agencies are incentivized by incentives. This means that the credit ratings assigned are correlated with the amount the rating agencies get paid. The higher the rating agencies get paid, the higher the rating they will assign to the borrower.

Here is more evidence of the destructiveness of rating agencies:
West Haven, Connecticut, which has closed four school buildings over the past two years and fired 14 teachers to help cut its budget deficit, is about to pay Moody’s Investors Service almost double what it cost six years ago for a credit rating. 
Joseph Mancini, finance director for the city of 55,000 near Yale University, says he has no choice other than to meet the demands of Moody’s after the municipality’s bonds were downgraded to Baa1 in January, three levels above junk, from A2. 
“The market’s going to punish us for the rating we’re at,” Mancini said in a telephone interview. “If we didn’t get it rated, we would be punished even more.”
Connecticut is about to pay  double what it paid six years ago. The compounded growth is approximately 12% per annum. And one wonders why US corporate profits are at record levels. Here is why the rating agencies can exploit the borrowers:
“It’s very hard to convince someone to stop using S&P and Moody’s ratings because they’re such a market norm,” James Gellert, chief executive officer of Rapid Ratings, which charges investors rather than issuers for its grades, said in a telephone interview. “If you don’t have one, people will wonder what’s wrong with you.”
“There are very few businesses that have the competitive position that Moody’s and Standard & Poor’s have,” Buffett said. Berkshire is an “unwilling customer” of Moody’s when it issues bonds, Buffett said. “We pay for ratings, which I don’t like.” 
Moody’s raised its standard fee this year on corporate bond offerings to 5 basis points, or 0.05 percentage point, of the amount being raised with a minimum of $73,000, from 4.65 basis points in 2010, according to Michael Meltz, a JPMorgan Chase & Co. analyst in New York. S&P asks for 4.95 basis points with an $80,000 minimum, up from 4.75 basis points and a $72,500 minimum last year. It would cost $497,500 to have both companies evaluate a $500 million debt sale. 
S&P and Moody’s haven’t lost business as a result of their increases, said Peter Appert, an analyst at Piper Jaffray & Co. in San Francisco. 
“Pricing has no bearing on whether somebody is going to issue debt or not,” Appert said in a telephone interview. The extra interest a borrower would have to pay on an unrated bond is a “whole lot more” than the cost of a rating, he said.
And here is why rating agencies are a giant extortion scheme:
“They are extorting the cities of this country,” Frank said in a telephone interview. “By the criteria they use for the private sector, every full faith and credit municipal bond should be AAA.” 
Bonds from cities and countries are rated “more harshly” than those of banks and corporations, according to the academic study, which was released in August by Jess Cornaggia of Indiana University, Kimberly J. Cornaggia of American University, and John E. Hund from Rice. There’s “virtually no chance” of default on bonds backed by the ability to tax, Frank said.
Source: Bloomberg

Tuesday, November 15, 2011

Hiring People To Gamble (Singapore)

Shocking, but true. There are people who actually just hire Bangladeshi's to gamble on their behalf:
A hard day's work for Bangladeshi construction worker Salim used to mean toiling under the burning sun. But nowadays, at least once a week, he finds himself assigned to a very different kind of 'job' - playing the jackpot machines in the cool air-conditioned comfort of Resorts World Sentosa. 
The 29-year-old is one of a number of foreign employees being sent to the casino to gamble on behalf of their employers to feed their own habit, a Straits Times investigation has found.
Five bosses - some with exclusion orders against them - told The Straits Times that they have been handing workers cash, notebooks and mobile phones, then dispatching them to the casino. They claimed to know several other employers doing the same thing. 
The 'proxy gamblers', dressed mostly in company polo T-shirts and jeans, get a cut of the winnings, but if they lose too much, their pay is docked.
Classic case of benefits exceeding costs?

HT: Marginal Revolution

Volume 3 Issue 46: Two-Cent Economics

Price of Women's Underwear - Part 2

Two issues ago, I wrote a post attempting to explain why the price of women's underwear has kept on rising. It is all quite academic. There is no obsession with women's underwear. I received a comment on something that I actually missed out in my analysis.

But before that, here is a picture of Miranda Kerr and the US$2.5 million "Fantasy Bra" that's going to be released:

I had claimed that I could not think of goods that are related to women's underwear but I had totally forgotten about the models that parade those very garments. While it may be true that the models are being paid for their looks, this article here reveals that it is a lot more than just that:
So here's what it really takes to be an Angel: Lima, 30, has been working out every day with a personal trainer since August. For the last three weeks, she's been working out twice a day.

"It is really intense, it's not really the amount of time you spend working out, it's the intensity: I jump rope, I do boxing, I lift weights, but I get bored doing that. If I am not moving I get bored very easily." 
She sees a nutritionist, who has measured her body's muscle mass, fat ratio and levels of water retention. He prescribes protein shakes, vitamins and supplements to keep Lima's energy levels up during this training period. Lima drinks a gallon of water a day. For nine days before the show, she will drink only protein shakes - "no solids". The concoctions include powdered egg. Two days before the show, she will abstain from the daily gallon of water, and "just drink normally". Then, 12 hours before the show, she will stop drinking entirely.

"No liquids at all so you dry out, sometimes you can lose up to eight pounds just from that," she says. 
"It's like they're training for a marathon," says Sophia Neophitou, the British fashion editor who is chief stylist for this year's show. 
"Adriana works really hard at it. It's the same as if you were a long-distance runner. They are athletes in this environment - it's harder to be a Victoria's Secret model because no one can just chuck an outfit on you, and hide your lumps and bumps.
I mean, I knew that it wasn't easy being a model. But this is what it takes to be a world class model. It is no surprise that the models get paid A LOT. It is becoming clearer why women's underwear have shot up in price.

Volume 3 Issue 46: Intelligent Investing

Insider Trading At Its Best

This is crazy:
"In mid September 2008 with the Dow Jones Industrial average still above ten thousand, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were holding closed door briefings with congressional leaders, and privately warning them that a global financial meltdown could occur within a few days. One of those attending was Alabama Representative Spencer Bachus, then the ranking Republican member on the House Financial Services Committee and now its chairman. 
Schweizer: These meetings were so sensitive– that they would actually confiscate cell phones and Blackberries going into those meetings. What we know is that those meetings were held one day and literally the next day Congressman Bachus would engage in buying stock options based on apocalyptic briefings he had the day before from the Fed chairman and treasury secretary. I mean, talk about a stock tip. 
While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts."
Even though the Congress is exempt from insider trading law, many of 60 Minutes’s findings are hugely damming, which you can tell just by looking at the stunned faces of John Boehner and Nancy Pelosi when Steve Croft questions them about their special dealings. The video is here.
With such insider deals going on day in and day out, it is very demoralizing as an individual investor. Is stock market investing (speculating/trading) all about insider information now? I can't help but feel disillusioned. And then here is Warren Buffett cutting a deal with the SEC:
How do you buy $10bn worth of stock in a big blue chip like IBM without alerting the market?
Check out the footnote to Buffett’s latest disclosures of his investment holdings released by the SEC:
“Confidential information has been omitted from the Form 13F and filed separately with the Commission.” 
In other words, Buffett got permission from the SEC to keep some of his stock holdings secret. This isn’t unusual for Buffett. Most big investors have to publicly reveal their stock investments every three months. 
Problem is, when other investors get wind that Buffett is buying a stock, the price tends to zoom up — meaning the price goes up for Buffett to buy more. So Buffett periodically asks the SEC to keep some of his stockholdings a secret.
Isn't this what efficient markets is all about? Warren Buffett may be every value investor's hero, but even that doesn't warrant him special treatment by the SEC.

HT: Marginal Revolution, Alphaville

Friday, November 11, 2011

Weekend Laughs

Just can't help it

Volume 3 Issue 45: Two-Cent Economics

Roubini The Prophet (again?)

OK, I take it back. Roubini is not a loser. He does make a lot of extreme forecasts, but some of them actually make sense. For example, he spoke at Davos in 2006 about the dangers that the Eurozone was facing. I doubt anyone listened to him at that time. Here are some highlights:
In summary, there is serious growth divergence in the Eurozone area. This performance divergence is leading to serious tensions in fiscal and monetary policy. Given the growth slowdown and the political difficulties of fiscal adjustment when growth is mediocre, larger fiscal deficit are emerging in many laggard countries. These persistent violations of the GSP are a medium term threat to EM and to the ECB no bailout rule. Also, economic divergence and the tensions it is creating is leading to political pressures on the ECB to do more to stimulate growth, as the reaction of EU finance ministers to the ECB December 2005 decision to hike rates by 25bps shows. 
This growth divergence is becoming a serious threat to EMU. As an increasing number of European observers are suggesting, different countries are coping differently to these challenges. Daniel Gros has shown that Germany has reacted with corporate restructuring, cutting labor costs and “competitive deflation”. I would argue that Italy has done little and is experiencing “stagdeflation”, a combination of stagnation and deflation. Indeed, as shown by Daniel Gros Italian labor costs have increased by 20% relative to those of Germany since EMU while Italy’s trade market shares have fallen by 20% relative to Germany. Similar competitiveness problems are faced by Greece, Portugal and Spain.
In conclusion, my view is that EMU can work and has worked for the Eurozone countries that have reformed and are reforming. But, unless Italy and other Eurozone laggards change their policies to pursue serious economic reforms that restore competitiveness and growth, they will eventually be forced to exit EMU. This would be a disaster but a disaster that may become unavoidable unless policies change. And I am currently pessimistic about the chances that such changes may occur given the policy makers and policies currently in place in countries like Italy.”
In 2006, I guess I was still in the peewee leagues in terms of analyzing economies. Nonetheless, five years later, in 2011, the fact that things are turning out to be closer and closer to what Roubini described  is enough to prove to me that he is no loser.

But I can't say that he is alone in seeing this problem. I don't know enough about the Eurozone issues. But I think the fact that he saw this as a competitiveness issue shows some deep insight. I always feel appalled when I read about people saying that the trouble with Eurozone is that they have a monetary union without a fiscal union. That doesn't even begin to scratch the surface of the problem.

The lazy PIGS are quite simply, lazy and complacent. They have brought this upon themselves through years of resting on their laurels. It is going to be a painful period for the Eurozone, and for the rest of the world. Personally, observing the way things are going with the Eurozone right now, it feels a lot like watching a tragedy in slow motion. It is agonizingly painful. It would seem like you know a disaster is coming but you can't avoid it. Something like being on the Titanic as it is sinking.

As Tim Duy points out:
There is no solution, no magic summit at hand. At this point, it is a choice between severe recession and depression. There is no happy ending to this story.
 Good times ahead.

Tuesday, November 08, 2011

More On Evil IPOs

Just to follow up on my previous post on Evil IPOs.

Essentially, IPOs are, aptly described in this article, uber expensive lottery tickets:
Initial public offerings get a lot of coverage, and why not? Everyone loves the idea of taking hard-earned money and using it to gamble in the hope that they’ll end up owning the next Amazon or Google and not or Demand Media. What often gets lost when we get all excited about a hot new I.P.O. is the pesky fact that most of the time buying an I.P.O. is a great way to lose money.
I remember standing in a long line in 2006 for an open house for a new Toll Brothers community being built in Las Vegas. The person in front of me and the one behind me were both real estate agents on the phone with what I assume were clients, imploring them to get down there right now because this “deal was HOT!” Hot is not a word that you should use when you’re considering investing your hard-earned money. Can you imagine Warren Buffett and Charlie Munger getting all “hot” about their next deal? In fact, I can think of nothing “hot” about investing correctly. 
Of course, there are I.P.O.’s that do well. Think of all the money you would have made if you had just invested in Amazon or Google at the I.P.O. price. Those instances seem to happen frequently enough for us to ignore the fact that the odds are against us. Sounds a bit like the lottery. 
Normally when you invest money, you actually need it for rather important things like sending your children to college. So you do at least a little research. I.P.O.’s in general are hard to research, and Groupon has been no exception. You have the chief executive, Andrew Mason, saying things like, “With a market measured not in billions but in trillions of dollars, we’re just getting started.” And on the other hand, you have a new company in an industry it almost invented, with no profits. 
Sounds like a tossup to me. 
There is nothing wrong with using money to gamble on a tossup. Who knows, you may be right. Just do everyone a favor and stop pretending that it’s an investment. It’s a lottery.

Inspiration For The Euro

Inspiration for the € symbol itself came from the Greek epsilon (Є) – a reference to the cradle of European civilisation – and the first letter of the word Europe, crossed by two parallel lines to ‘certify’ the stability of the euro.

Steve Jobs - The Tweaker

I have read many accounts and tributes since Steve Jobs passed away. Though, I have yet to read his biography. I will get to that sooner or later.

I asked the question, "what did Steve Jobs really invent?". Nothing, really. But that does not mean he did not contribute anything. Here is one of the better accounts of what Steve Jobs really contributed and in what way he really was a genius:
In the eulogies that followed Jobs’s death, last month, he was repeatedly referred to as a large-scale visionary and inventor. But Isaacson’s biography suggests that he was much more of a tweaker. He borrowed the characteristic features of the Macintosh—the mouse and the icons on the screen—from the engineers at Xerox PARC, after his famous visit there, in 1979. The first portable digital music players came out in 1996. Apple introduced the iPod, in 2001, because Jobs looked at the existing music players on the market and concluded that they “truly sucked.” Smart phones started coming out in the nineteen-nineties. Jobs introduced the iPhone in 2007, more than a decade later, because, Isaacson writes, “he had noticed something odd about the cell phones on the market: They all stank, just like portable music players used to.” The idea for the iPad came from an engineer at Microsoft, who was married to a friend of the Jobs family, and who invited Jobs to his fiftieth-birthday party. As Jobs tells Isaacson: 
This guy badgered me about how Microsoft was going to completely change the world with this tablet PC software and eliminate all notebook computers, and Apple ought to license his Microsoft software. But he was doing the device all wrong. It had a stylus. As soon as you have a stylus, you’re dead. This dinner was like the tenth time he talked to me about it, and I was so sick of it that I came home and said, “Fuck this, let’s show him what a tablet can really be.” 
Source: The New Yorker

Saturday, November 05, 2011

Volume 3 Issue 45: Intelligent Investing

Everyone Wants To Be A Billionaire

"I wanna be a billionaire so fucking bad" - Bruno Mars
After the so-called success stories of infamous college dropouts like Bill Gates, Steve Jobs and more recently, Mark Zuckerberg, a myriad of teeny-techies rushed to Silicon Valley to create names for themselves. The trend is still very much on-going, but it has spread beyond just the IT industry. More and more start-ups with brilliant ideas keep popping up. Just the other day, I posted a little story on Dropbox and how it became the Internet's hottest start-up.

The success stories of these "supposedly" normal people are very misleading. I mean, Steve Jobs was adopted, and lived a life full of bumpy roads before guiding Apple to be the biggest tech company in the world. So normal is hardly an understatement. But what is truly understated is the failure rate of start-ups. Every young adult dreams of owning his/her own company some day. It is sad to say, not all of them will succeed. Starting up a company is easy enough. Keeping it alive for more than three years, not so much.

Here is what Zuckerberg thinks about his startup, Facebook:
Zuck revealed a number of fascinating things about entrepreneurship, founding Facebook, and product development, but one of the more interesting (and surprising points) came at the end of the interview when Livingston asked him what he would do different if he could go back in time. Zuck replied: If I were starting now I would do things very differently. I didn’t know anything. In Silicon Valley, you get this feeling that you have to be out here. But it’s not the only place to be. If I were starting now, I would have stayed in Boston. [Silicon Valley] is a little short-term focused and that bothers me.
As I have said time and again. Having long term goals are not only essential, but is necessary. He added:
“There’s this culture in the Valley of starting a company before they know what they want to do. You decided you want to start a company, but you don’t know what you are passionate about yet…you need to do stuff you are passionate about. The companies that work are the ones that people really care about and have a vision for the world so do something you like.”
This mantra simply cannot be repeated enough. Steve Jobs has said it before, and now Mark Zuckerberg repeated it. Here is what Bob Parsons, founder of has to say about his 16 rules of success:

1. Get and stay out of your comfort zone.
I believe that not much happens of any significance when we're in our comfort zone.  
I hear people say, "But I'm concerned about security."  My response to that is simple: "Security is for cadavers." 
2. Never give up.
Almost nothing works the first time it's attempted.  Just because what you're doing does not seem to be working, doesn't mean it won't work. 
It just means that it might not work the way you're doing it.  If it was easy, everyone would be doing it, and you wouldn't have an opportunity. 
3. When you're ready to quit, you're closer than you think.
There's an old Chinese saying that I just love, and I believe it is so true.  It goes like this: "The temptation to quit will be greatest just before you are about to succeed." 
4. With regard to whatever worries you, not only accept the worst thing that could happen, but make it a point to quantify what the worst thing could be.
Very seldom will the worst consequence be anywhere near as bad as a cloud of "undefined consequences."  
My father would tell me early on, when I was struggling and losing my shirt trying to get Parsons Technology going, "Well, Robert, if it doesn't work, they can't eat you." 
5. Focus on what you want to have happen.
Remember that old saying, "As you think, so shall you be."
6. Take things a day at a time.
No matter how difficult your situation is, you can get through it if you don't look too far into the future, and focus on the present moment.  
You can get through anything one day at a time. 
7. Always be moving forward.
Never stop investing.  Never stop improving.  Never stop doing something new.  The moment you stop improving your organization, it starts to die.  
Make it your goal to be better each and every day, in some small way.  Remember the Japanese concept of Kaizen.  Small daily improvements eventually result in huge advantages. 
8. Be quick to decide.
Remember what General George S. Patton said: "A good plan violently executed today is far and away better than a perfect plan tomorrow." 
9. Measure everything of significance.
I swear this is true.  Anything that is measured and watched, improves. 
10. Anything that is not managed will deteriorate.
If you want to uncover problems you don't know about, take a few moments and look closely at the areas you haven't examined for a while.  
I guarantee you problems will be there. 
11. Pay attention to your competitors, but pay more attention to what you're doing. 
When you look at your competitors, remember that everything looks perfect at a distance. 
Even the planet Earth, if you get far enough into space, looks like a peaceful place. 
12. Never let anybody push you around. 
In our society, with our laws and even playing field, you have just as much right to what you're doing as anyone else, provided that what you're doing is legal. 
13. Never expect life to be fair. 
Life isn't fair. You make your own breaks. You'll be doing good if the only meaning fair has to you, is something that you pay when you get on a bus (i.e., fare). 
14. Solve your own problems. 
You'll find that by coming up with your own solutions, you'll develop a competitive edge.  
Masura Ibuka, the co-founder of SONY, said it best: "You never succeed in technology, business, or anything by following the others."  
There's also an old Asian saying that I remind myself of frequently.  It goes like this: "A wise man keeps his own counsel." 
15. Don't take yourself too seriously. 
Lighten up.  Often, at least half of what we accomplish is due to luck. None of us are in control as much as we like to think we are. 
16. There's always a reason to smile. 
Find it.  After all, you're really lucky just to be alive.  Life is short.  
More and more, I agree with my little brother. He always reminds me: "We're not here for a long time, we're here for a good time!"
And finally, here is Zuckerberg again:
“The biggest risk is not taking any risk…In a world that changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
Anyone up for a start-up?

HT: Business Insider, TechCrunch

Friday, November 04, 2011

Evil IPOs

Check out the top 25 IPOs in the last two years. Of that, 20 of them have tanked:

Click on the figure to see the enlarged version. This post is in conjunction with Groupon's IPO later today. I mean, seriously, people. Stay away from IPOs, especially the hot ones. Here is why:
On average the 25 hot IPOs here have slipped 31% from their opening price. The total for all 333 IPOs from 2010/11 for which Bloomberg has data is -11.1%. And the average pop was about 7.7 percent. So you might call that normal. 
For those who want a deeper dive into the data: Those numbers include those hot 25. If you take them out, the average pop was just 3.4% and the drop since the IPO was 7.5%. Since the start of trading, the hot IPOs clearly did worse than others.
HT: Bloomberg Businessweek

Eurozone In One Paragraph and A Bit On Roubini

If it was ever possible to describe the Eurozone debacle in one paragraph, this would be it:
EconoMonitor : Nouriel Roubini's Global EconoMonitor » Full Analysis: Greece Should Default and Abandon the Euro: "Like a broken marriage that requires a break-up, it is better to have rules—divorce laws—that make separation orderly and less costly to both sides. Breaking up and divorcing is painful and costly even when such rules exist. But being stuck in a marriage of convenience that is not working any longer is more costly and painful for the couple and their offspring (children/future generations) than an orderly and civilized break-up. Once the pain and costs of the break-up are managed, both sides can look forward to a more friendly relationship and a brighter future."
I have always been harsh on Roubini, but a good analyst should know when something someone says is right. The reason I am not too fond of Roubini is because he got lucky with the 2008 financial crisis prediction. He is the epitome of the following statement:
If you must forecast, forecast often, and if you’re ever right, never let them forget it.
If you don't believe me, read here:
In 2006, a somewhat obscure economist stood before a room full of peers at the International Monetary Fund and let loose with some good old-fashioned doomsaying. The United States was about to get hit with a ghastly housing bust, he said. The price of oil was about to skyrocket, and a particularly nasty recession was on its way, bringing with it untold ruin and misery for citizens, bankers, and businesspeople all over the world. The prophesy was dismissed initially as the mutterings of a pessimistic crank. A year later, he was proved right beyond all doubt. “He sounded like a madman in 2006,” an economist who had attended the talk later told The New York Times. “He was a prophet when he returned in 2007.” 
That economist was New York University’s Nouriel Roubini. And since he called the Great Recession, he has become about as close to a household name as an economist can be without writing “Freakonomics” or being Paul Krugman.
But here’s another thing about him: For a prophet, he’s wrong an awful lot of the time. In October 2008, he predicted that hundreds of hedge funds were on the verge of failure and that the government would have to close the markets for a week or two in the coming days to cope with the shock. That didn’t happen. In January 2009, he predicted that oil prices would stay below $40 for all of 2009, arguing that car companies should rev up production of gas-guzzling SUVs. By the end of the year, oil was a hair under $80, Hummer was on its way out, and automakers were tripping over themselves to develop electric cars. In March 2009, he predicted the S&P 500 would fall below 600 that year. It closed at over 1,115, up 23.5 percent year over year, the biggest single year gain since 2003. 
How can this be? How can someone with the insight to be so right about a major event be so wrong about so many other ones? According to a recent study, it’s simple: The people who successfully predict extreme events, and are duly garlanded with accolades, big book sales, and lucrative speaking engagements, don’t do so because their judgment is so sharp. They do it because it’s so bad. 
That one big call about the Great Recession gave him an unrivaled platform from which to issue ever more predictions, and a grand job title to match his prominence, but his subsequent predictions suggest that his foresight may be no better than your average man on the street. The curious nature of his fame calls to mind two of economist Edgar Fiedler’s wry rules for economic forecasters: “If you must forecast, forecast often,” he wrote. And: “If you’re ever right, never let ’em forget it.”
Here is more on Alphaville and Real Time Economics:

Roubini has actually talked about this kind of thing before, in his now-famous 2006 speech to the IMF that predicted the crisis. Back then, he was forecasting a 70 per cent chance that there would be a severe recession. 
Where did he get his number? Here’s what he said in the speech:
My analysis has been based on circumstantial kinds of observations. I am not a professional forecaster and I do not use a big global macro model. Even then I said the probability of a recession is “70 percent”. If you ask me where I got that number: just out of my nose, I will be very honest about that. I think if you said “50 percent” you look like a wimp, it means you are not sure. So if you have the guts of believing there is going to be a recession, you should say something higher than that, and that is where the “70 percent” comes from. 
So my model is a ‘smell test’ or a ‘duck test’: if it looks like a recession and walks like a recession and quacks like a recession, it should be a recession. Or we can think of it as being the famous ‘obscenity test’: I’m referring to the Supreme Court Justice who said ‘I cannot define obscenity or pornography, but I know it when I see it’. So I see a recession that is based on this analysis and based on data and historical evidence.
Just out of his nose? Well, there are worse places to pull a forecast out of. Though if 50 per cent makes you “look like a wimp”, what should using the 40% Rule do for your image?
Get what I mean now? 

Thursday, November 03, 2011

Fastest Man Ever

There is no argument that Usain Bolt is the fastest man alive at the moment. The fastest man ever? That is another question altogether. Usain Bolt shattered all preconceptions of how fast humans can run when he broke the world record in style with a 9.58 second 100 meters. His record time at the Beijing Olympics was at 9.69 seconds, and he did that while taunting his opponents. But will Usain Bolt be the fastest man ever? Will the time for the 100-meter dash go down to the 9.4s or even sub-9?

Here is a very interesting account throughout. It's a long read, but a good one. Excerpt:
He is, as far as we can tell, the fastest human who's ever lived — in 2009, at a race in Berlin, he ran the 100-meter dash is 9.58 seconds. This translates to an average speed of just over 23 mph (with a top speed closer to 30 mph). His '09 performance in Germany was .11 quicker than the 9.69 he ran at the 2008 Beijing Olympics, the fattest chunk ever taken off a world record at that distance. Considering the unadulterated simplicity of his vocation and the historic magnitude of his dominance, it's easy to argue that Bolt has been the world's greatest athlete of the past five years. And yet there's an even easier argument to make than that one: Within the next 10 years, Bolt's achievements as a sprinter will be completely annihilated. 
This is not guaranteed, of course, but it's certainly more plausible than speculative — for the past 30 years, the men's record in the 100-meter dash has been assaulted so continually that many of its former record holders don't even qualify as difficult answers to trivia questions. This was not always the case: Jim Hines broke the 10.0 barrier with a 9.95 at the (high-altitude) 1968 Olympics; that mark stood for 15 years before Calvin Smith ran a 9.93 (also at altitude) in Colorado Springs. But since 1983, the record has been shattered more than a dozen times. Ben Johnson's steroid-fueled 9.83 in '87 was the first massive blow, but eight others have chipped away at the record with increasing regularity (Bolt just happened to use a sledge hammer).
There's some interesting insights into what it takes to be the best as well:

Is there a ceiling to how fast a man can run? Will there be a day — maybe in 50 years, or maybe in 500 — when someone runs the 100-meter dash in 8.99 seconds? 
"In order to answer this question, you have to think like a sprinter. And sprinters believe that — someday — somebody will run the 100 meters and the clock will read 0.00." Ato Boldon tells me this over the telephone. Boldon is now known as a track analyst for NBC and CBS, but he's also a four-time Olympic medalist and the fastest man the island of Trinidad has ever produced (in 1998, he ran the 100 in 9.86). "And when a sprinter thinks like that, he's not trying to trick himself. It's how you have to think. This idea of human limitation is exactly what we're competing against. It's thinking about running a 8.99 that gets you down to 9.58. That's how it works."

Harvard Students To Walk Out Of Mankiw's Class?

The Occupy Movement has reached the classroom. Harvard students are planning a walk-out on Gregory Mankiw's class. Read here for the full story. Here is an excerpt:
Read the full email below: 
Feel upset about EC10 but don’t know how to show your discontent? 
Want to get involved in the Occupy Movement? 
Join our STUDENT WALK-OUT of EC10 on Wednesday, November 2nd at 12:15! 
Gregory Mankiw will be lecturing, and this a great opportunity to show discontent with the style/material/content of the class! 
We will be heading over to the higher ed march after the walk-out and anyone is welcome.
So help show solidarity with the Occupy movement by walking out of EC10 at EXACTLY 12:15.
This is later than the general walk-out, but we are making an exception because it is such a symbolic class/instructor. 
Let’s show Mankiw that his lack of teaching, extremely high textbook cost, and biased instruction matter to the students!
HT: Business Insider

More Nominal GDP Targeting

More for me than for anyone, again:
Nominal GDP Targeting, A Contribution - Oregon Office of Economic Analysis: "The subject of Nominal GDP targeting has been ongoing within the economic blogosphere for at least the past couple of years. Bentley University professor Scott Sumner has been championing the idea on his The Money Illusion blog (see his National Affairs article too) and the subject has begun to surface as serious monetary policy with recent reports by Goldman Sachs, the Wall Street Journal and Christina Romer’s Op-Ed this past weekend, among many others. The purpose of this post is not to comment explicitly on central bank policy or the different policy regimes currently used around the world, nor is it to comment directly on NGDP targeting itself; it is designed to examine how the Federal Reserve has forecasted NGDP over time. Hopefully this serves the purpose of understanding what the Fed expects economic performance to be in the future when it sets its policies and to see if the Fed currently is already targeting NGDP, at least implicitly."

Tuesday, November 01, 2011

Views From America's 52nd State

I can't seem to get my head around this idea that the "Westerners" think of China as the enemy. I say "Westerners" because Japan is really considered a Western country. Apparently China steals jobs, and tries to bully its neighbors into submission. Here is another sample of this "China is the enemy" point of view:
China, it is plain to see, is at the root of most of the disputes troubling Asia. Two main issues must be managed – one philosophical, the other structural – in seeking to ameliorate the problems caused by China’s unconstrained rise. Only by resolving the structural issue will Asia succeed in overcoming the philosophical problem. 
The philosophical problem concerns China’s renewed conception of itself as the “Middle Kingdom,” a state with no sovereign equal. Throughout its history, China has sought to treat its neighbors as vassals – a mindset currently reflected in the way that it has approached negotiations with Vietnam and the Philippines over the South China Sea
China’s free-floating rise, unanchored in any regional structure or settlement, makes this mindset particularly worrying. At the Hawaii summit, Obama must orchestrate the first steps toward constructing an effective multilateral framework within which the complications posed by China’s rise can be addressed
The absence of such a structure of peace has been obscured, to some extent, by America’s dominant role in Asia since the Pacific War. But China’s rise and America’s other global and domestic concerns have left many Asians wondering just how enduring those commitments will be in the future. Nevertheless, China’s recent strategic assertiveness has led many Asian democracies to seek to deepen their ties with the US, as South Korea has done with a bilateral free-trade agreement. The US is reciprocating by pledging not to cut Asia-related defense spending, despite the big reduction in overall US defense spending that lies ahead.

No surprises here. The author is the former Minister of Defense of Japan, Youriko Koike. As my boss likes to say, Japan is America's 52nd state. Whatever that Koike has said about China can be said of the US. Historically, the US is known to use strong arm tactics to get countries to bend according to its will. It is a plain and simple fact. With rising economic power comes economic influence. There is nothing wrong with that. Let it be known that historically, China has NEVER ventured across its borders to go to war. Can the same be said for the US?

Being Krugman on Halloween

Krugman and the head of the Supply Side monster
Just awesome.

HT: Business Insider